Power Auctions in Offing, Residential Prices Expected to Remain Flat

Tom Johnson | February 1, 2016 | Energy & Environment
But large industrial users have ability to contain prices by playing competing suppliers against one another

utility pole
Beginning Friday, the state will oversee a multibillion dollar auction that will help determine how much customers pay for the electricity to power their homes and businesses.

In an annual process, the state’s four electric utilities will buy the power they need to supply their customers as of this June. If recent trends hold, the auction should not have much of an impact, either higher or lower, on utility bills.

For past seven years, most customers have seen the price for the electricity generated by power plants sold during the auction drop, a result of sharply lower costs for natural gas, which is used to generate much of the electricity in New Jersey.

The cost of generating that electricity — the biggest part of a customer’s bill — has not been regulated by the state Board of Public Utilities since the sector was deregulated in 1999. Other factors, however, can push bills higher, including what utilities get paid to deliver electricity to customers over local poles and wires (distribution) and the cost of using transmission lines from power plants to substations.

In last year’s auction, there were modest drops in the price of power purchased by two of the four utilities, with costs dropping up to 4 percent for Atlantic City Electric and dipping by 3.2 percent for Rockland Electric. Jersey City Power & Light bills remained relatively flat, while Public Service Electric & Gas customers saw increases of about 2 percent.

The format of this year’s auction is essentially the same as last year’s, with some minor refinements; the BPU has used this procedure since 2002. The agency repeatedly contends that the current system has worked well, ignoring suggestions from industry lobbyists to change it.

Two separate online auctions will be held. The first, starting Friday, will be for the power to be sold to larger commercial and industrial customers. Those customers generally have seen the biggest benefit of deregulation, which has given them the ability to negotiate lower prices from competing power producers vying for their business.

The second auction, set to begin a week from today, will be for residential and small commercial customers, the majority of whom will continue to have their electricity supplied by their incumbent utility. The price these incumbents charge customers for electricity is set during the auction; the utility passes those costs directly on to customers without making any profit.

In New Jersey, only 11.5 percent of the 3.4 million residential customers have opted to switch to alternative suppliers, meaning they will pay the price set at the auction.

Nationwide, the Energy Information Administration projects in its short-term energy outlook that the price residential customers will pay for electricity will be unchanged in 2016 at about 11.5 cents per kilowatt hour.

The auctions are expected to conclude next week, with the results made public within a few days.